Wednesday, January 20, 2016

BAC Q4 earnings

Bank of America Corporation reported fourth quarter earnings per share of $0.28, beating the street estimates of $0.26 on January 19th. They reported revenue of $19.53B, which is a 4.3% increase Y/Y. However, the revenue missed estimates by $250M. The stock initially had a positive reaction, but since then the market sell off has affected the price. Although some analyst say BACs expenses remain too high, they are headed in the right direction, finally being able to move past most of their legal problems from the recession. The company is becoming more efficient, improving their efficiency ratio from 88% in 2014 to 68% in 2015. As they lower their expenses it will improve further.
The bank makes most of its money from net interest income and non-interest income. We saw net interest income grow in Q4 2015 to $10.5B from $10.3B in Q3 2015, and $10.4B Q4 2014. Non-interest income was also up to $9.7B, a 7% increase Y/Y. As for consumer benefits, CEO Brian Moynihan says spending on credit and debit cards rose 4% Y/Y, but without the oil decline, it would have risen 5.7%. Putting a dollar number on it, that's $20M per day in savings to the bank's credit and debit card customers.

With interest rates rising, that can only help the NII, and the largest banks will see some gains. BAC saw their best year for earnings since the Great Recession.

Sunday, January 17, 2016

Citigroup Beats Estimates for Fourth Consecutive Quarter; Stock Falls on Global Uncertainty

Citigroup posted a fourth quarter earnings per share (excluding impact of CVA/DVA) of $1.06 beating consensus estimates of $1.05, on January 15th.  This EPS disclosure represents just below a 17-fold increase from Q4 2014, when the company posted a $0.06 EPS, due mainly to absorbing legal and repositioning costs. This marks the fourth consecutive quarter that Citigroup surpassed EPS estimates. Citi posted top-line revenue of 18.64 billion for Q4 2015, surpassing estimates of $17.87 billion. 2015 saw annual earnings per share of $5.35.

Broken down, Citi saw Investment Banking and Fixed-Income, Currencies & Commodities revenues exceed expectations for Q4, whereas Equity revenue missed estimates by $165 million.  With the closing of their fiscal year Citi saw their annual net income amount to $17.1 billion. This not only represents more than a 130% increase YoY, but also marks the highest annual net income for Citi since 2006. Citi’s expenses as a percentage of revenue decreased to 57% for 2015 from 65% in 2014. This stems from Citi’s devotion to cutting unnecessary costs and repositioning itself to better suit its environment, along with the continued uptick of the US economy following the 2007 Housing Crisis.

Although the disclosure was almost all positive the share price tumbled 7% on the day to $42.47 at the week’s closing. This comes on the back of news relating to the uncertainty of the Chinese markets and the lowest oil prices seen since 2003. Citi is very exposed to China, asset-wise, causing shareholders to weigh the positive earnings news with the current global landscape. Citi was not the only victim of the current market situation, as the Dow, NASDAQ, and S&P all finished firmly in the red on Friday.

It looks as though Citi is in a good financial situation, moving forward into 2016. They are repositioned and look primed to increase revenues again next year. The stock continues to be very undervalued, currently at $42.47/share, compared to its end-of-the-year book value of $69.46 and tangible book value of $60.61. Hopefully, 2016 sees an end to the instability in the Chinese and oil markets, and an increase in revenues due to hiked interest rates. Regardless, we must keep a close eye on the situation as the stock is down almost 12% since January 1st, 2016.

Saturday, January 16, 2016

PNC Closes 2015 Out Strong; China & Oil Weigh on Markets

PNC posted diluted earnings per share of $1.87 which surpassed Street estimates of $1.80. This represents an earnings surprise of 3.9% and growth of 1.6% from the same quarter in the prior year. Results were mainly driven by lower expenses, which unfortunately were offset by lower revenues and higher provisions for credit losses and net charge offs. Despite the positive report, the results were masked by worries in China and oil with each of the main indices down at least 3% in intraday trading. PNC closed the week at $86.36.

Revenue for the quarter came in at $3.85 billion which was down 2.4% from the prior year. The decline was mostly due to a fall in non-interest income but the figure still beat on consensus revenue estimates. Net income in the Retail Banking, Asset Management Group and Non-Strategic Assets Portfolio increased 23.8%, 13.3%, and 23.3%, respectively, from the prior year’s quarter. Net income in the Corporate & Institutional Banking and Other segments declined 4.4% and 33%, respectively.

Net interest income for the quarter was down 0.2% year over year due to lower purchase accounting accretion, despite an increase in core net interest income. PNC’s net interest margin decreased 19 bps to 2.70%. Net charge offs increased 2% year over year to $120 million and provision for credit losses rose 42% to $74 million.

In the quarter, PNC repurchased 5.8 million common shares for $0.5 billion. As of December 31st Basel III common equity tier 1 ratio was 10.7%. Total assets were $358.5 billion, up 3.9% year over year. Total loans and total deposits increased 0.9% and 7.2%, respectively.

Sunday, November 22, 2015

Spectrum Brands Holdings Q4 2015 Earnings

Spectrum Brands Holdings (SPB) reported its Q4 2015 earnings on Thursday, November 22, 2015. The company reported Q4 EPS of $1.13, $0.04 worse than the analyst estimate of $1.17. Revenue for the quarter came in at $1.31 billion versus the consensus estimate of $1.33 billion. Although the company missed on both top and bottom line, the stock reacted positively to strong updated company guidance for FY 2016. Before the company released earnings the stock was priced at $92.45 per share but then rose approximately 4% to $96.18 post earnings. Spectrum Brands expects fiscal 2016 net sales, as reported, to increase in the high-single digit range compared to fiscal 2015 reported net sales of $4.69 billion. Fiscal 2016 free cash flow is projected to be approximately $505-$515 million compared to $454 million in fiscal 2015. Capital expenditures, which were $89.1 million in fiscal 2015, are expected to be in the rage of $110 million to $120 million. I believe the company’s strong updated guidance including expected growth in sales and increase in capital expenditures will provide expansion, and support of technology innovation for the company which could definitely create an increase in value of the stock in the future. 

Saturday, November 14, 2015

ORCL 11/15

ORCL began trading the month of November at $39.05, and then reached a three month high on November 6th trading at $40.64. ORCL closed on November the 13th trading at $37.30 representing a 4.5% decrease for the month of November thus far. Additionally, this represents an 11.7% decline off of our purchase price of $42.25. This is close to where ORCL’s stock price has remained for much of the current quarter. ORCL’s cloud component continues to grow rapidly, however that growth does not appear to be well represented in the stock price. ORCL plans to hire more than 50 engineers in the next 6 months to build up its growing portfolio of Data-as-a-Service offerings. In early November ORCL launched a new cloud data product that can identify age and gender targeting with twice the precision of methods currently available on the market. On November 5th FBR & Co’s Daniel H. Ives downgraded the rating on the company from Outperform to Market Perform, while maintaining the price target at $44. The downgrade was due primarily to ORCL lack of ability to cope with foreign currency headwinds over recent quarters in addition to the lack of M&A expected to maintain ORCL’s new cloud business. However, late last month ORCL executive Larry Ellison alluded to the idea that they were saving cash for a large acquisition in the future. Additionally, ORCL was downgraded at Morgan Stanley which maintains a $45 price target.  

Jeff Sherman

Thursday, November 5, 2015

KORS Q2 Earnings Blog

Michael Kors reported second quarter revenue and earnings that both topped the Street’s expectations. Revenue came in at $1.13B, which beat estimates by $50M and represented a 7% increase year-over-year. Revenues were driven by strength in the company’s retail and wholesale segments across all geographies. Retail sales were up 8% due to 39 new store openings, strength in North American digital flagships and continued momentum internationally. Japan led the way, with sales increasing 61% on a constant currency basis. Comps were down 8.5% for the quarter, which was in line with expectations. The comparable store sales decline in North America was slightly offset by comp increases in Europe and Japan. If the U.S. digital flagship stores were included in the calculation, comps would have only been down low-single-digits in the quarter. Wholesale sales for the quarter grew 8% mainly attributed to continued strength in the accessories category. During the quarter 223 globally located wholesale stores were converted into shop-in-shops. The company continues to expand its wholesale business across all geographies. Licensing revenue was down 8% in the quarter primarily due to lower watch sales, somewhat offset by increased sales of jewelry, outerwear and eyewear. Gross margins were down 220 bps primarily due to the foreign currency impact on sales. SG&A was up 250 bps as a result global retail expansion, digital flagship initiatives, infrastructure investment for Korea in the men’s business, the building of a new European distribution center and continued investment in corporate systems. On the bottom line, earnings were reported at $1.01, which was $0.12 higher than expectations. This beat included a $0.06 negative impact from foreign currency exchange rates. Turning to the balance sheet, cash and equivalents decreased 57% from the same quarter last year due to the company’s ongoing share repurchase program. KORS purchased 9.4 million shares, totaling $400 million, during the quarter. To date the company has repurchased 23.2 million shares for approximately $1.2B. Inventory was up 15% YoY attributed to increased European inventory, acceleration of holiday merchandise and the consolidation of MK Panama. The remainder is due to normal growth as the company continues to expand its store base and e-commerce capabilities.

Wednesday, November 4, 2015

CIT Group 3rd Quarter Earnings Report

CIT Group reported Quarter three earnings pre market open on November 3rd. CIT Group posted EPS at $.80 and revenues of 520.9M. CIT Group beat estimates by $.09 and $.54M, yet the street reacted negatively to the beat, dropping CIT Group 2.5% on November 3rd. In the Transportation and North American banking business, CIT Grew to just over a billion dollars excluding the recent acquired assets. In transportation the commercial aircraft utilization rose slightly to 98%, and railcars declined to 97% which is because of the weaknesses in the commodity markets. CIT Group is continuing to participate in a share buyback program, and they provided investors a total of $170 million dollars.

Acquiring OneWest Bank increased CIT’s assets by almost 22 billion, which included 6 billion in cash, 8 billion in loans, and 6 billion in a run off mortgage portfolio. Net financing margin increased by 30 basis points to 3.7%, mostly because of a lower funding cost now. CIT’s transition to a commercial bank looks like it paying off, and with the possible increase in interest rates, CIT Group would only become more profitable, especially with the new acquisition.